Thursday, January 06, 2011

Interwar Presidents and the Fantasies of Historians

by Robert Murphy

It is understandable, though still harmful, when economists completely mischaracterize the policies of the Herbert Hoover Administration. But in his recent Salon piece on Sarah Palin's new book, historian David Greenberg distorts the legacies of both Calvin Coolidge and his ill-fated successor, Hoover. To set the record straight, it's worth pointing out exactly where Greenberg goes wrong.

Coolidge versus the Progressives

Greenberg finally gets down to business:
Coolidge's vogue on the right goes beyond the conservative principles he extolled; it lies in his conception of the presidency. He took office at a time when Theodore Roosevelt and Woodrow Wilson had transformed the executive branch, actively using their powers to restrain big business and secure a measure of fairness in economic life. Coolidge, in contrast, believed in a small federal government, a passive executive and light regulation of business. "If the federal government were to go out of existence," he said, "the common run of people would not detect the difference." The main legislative battles of his presidency were to implement the tax cuts favored by his plutocratic Treasury Secretary Andrew W. Mellon. He even balanced the budget.

In the first place, it is always interesting that the historians who are ostensibly concerned about "the little guy" revere US presidents in almost exact proportion to how many people were killed by their subordinates. Beyond Teddy Roosevelt and Woodrow Wilson's wars, however, is their dismal record of economic interventionism.

It is a myth that antitrust legislation, "trust busting," was a vehicle to protect consumers and workers from rapacious big businessmen, as Tom DiLorenzo explains in this lecture. And Woodrow Wilson enjoys the dubious distinction of having ushered in both the Federal Reserve and the federal income tax. Adherents of the Austrian theory of the business cycle know that the Fed fueled the 1920s stock bubble (as well as the housing bubble in our own times), and so can hardly be seen as a promoter of "fairness." But even using empirical mainstream research, one can see that the Fed has been a source of economic instability -- as Selgin et al. demonstrate in this article.

As far as federal income-tax rates, it's true that Coolidge took the advice of his Treasury Secretary, Andrew Mellon, to cut them. But that was because they had been raised to an absurd level during World War I. As this history shows, even the rate on the lowest bracket jumped from 1 percent in 1913 to 6 percent by 1918. Moreover, someone who made $20,000 in 1913 paid 1 percent in federal income taxes, but because the brackets were redefined, someone earning the same money income in 1918 paid a whopping 20 percent in federal tax. (Note too that from June 1913 to June 1918 the Consumer Price Index rose 50 percent, so that a given money income purchased far less in actual goods and services.)

In contrast to this onerous burden created under Woodrow Wilson, during the Coolidge years the bottom bracket's tax rate was brought down to 1.5 percent by 1926, while an upper-middle-class (though hardly "filthy rich") household earning $20,000 saw its tax rate slashed to 9 percent.

As far as fiscal responsibility, Coolidge was superlative, perhaps second only to Andrew Jackson, who literally paid off the national debt (as well as slew the central bank). Coolidge had a much more modest success, in that he ran budget surpluses every year he was in office.[1]

The Myth of the Do-Nothing Hoover

Although I have disagreed with Greenberg's remarks on Teddy Roosevelt, Wilson, and Coolidge, the disagreement largely stems from our differing views on economic theory. But when it comes to the Hoover record, Greenberg simply invents history:
There is another reason, of course, that Coolidge -- and not Warren Harding or Herbert Hoover, the other conservative Republicans of the interwar years -- has become a hero to the contemporary right. Harding, who was probably more conservative than Coolidge, was discredited by the Teapot Dome affair. ... Hoover, who put the small-government philosophy into effect at an hour of crisis, saw it fail utterly. They do not appear in Sarah Palin's new book.

This is demonstrably false; it would be akin to saying that George W. Bush sat back and did nothing in response to the collapse of Lehman Brothers. It's true, a die-hard interventionist could say Herbert Hoover didn't do enough, but it is simply not true to claim that he "put the small-government philosophy into effect."

Before looking at specifics, consider the broader picture. If it's really true that Herbert Hoover did nothing, and that's why the stock market Crash of 1929 devolved into the Great Depression, then what happened during all the previous crises in American capitalism? After all, there was no New Deal implemented during the panic of 1907, and yet the United States wasn't plunged into double-digit unemployment for a decade. And by many measures, the first year of the 1920—1921 depression was worse than the Great Depression; yet the economy bounced back quickly under the postwar budget slashing of Wilson and then Harding.

As I document in my book on the Depression, Hoover was in fact a big-government conservative. Perhaps his most fateful mistake was pressuring businesses to prop up wage rates after the stock-market crash. Coupled with the ensuing monetary and price deflation, this was a disastrous policy that raised the real wages of labor and contributed to the record levels of unemployment in the early 1930s. Yet here is Hoover's Secretary of Labor, James Davis, congratulating his boss's "accomplishment" in May 1930:
There never has been a crisis such as we have had as the stock market crash that threw . . . millions out of employment that there wasn't a wholesale reduction in wages. . . . If Hoover accomplishes nothing more in all of his service to the government, that one outstanding thing of his administration -- no reduction in wages -- will be a credit that will be forever remembered not by the working classes alone but by business men as well, because without money in the pay envelope business is the first to suffer.[2]


When recoiling against a leftist professor's praise for Theodore Roosevelt and Woodrow Wilson, there is a dangerous tendency to lavish hosannas on "right-wing" presidents. Although Calvin Coolidge was a fantastic president compared to his peers, he obviously was at least partially to blame for the massive stock bubble that developed in the final years of his administration.

Even so, David Greenberg, as a history professor and author of a book on this period in US history, should know better than to recycle the myth that Herbert Hoover was a laissez-faire ideologue. Even one of FDR's subordinates admitted -- years after -- that the New Deal had simply extended the pioneering interventions of the Hoover years.

If one wants to draw a straightforward lesson from Calvin Coolidge and Herbert Hoover, it is this: tax cuts and budget surpluses go hand in hand with phenomenal economic growth, while tax hikes, budget deficits, and radical growth in government go hand in hand with economic disaster.

More HERE (See the original for links)


'Saving' the Housing Market

Thomas Sowell

"Housing Market Setback Forecast," the newspaper headline said. A recently released report on housing says that home sales are down more than 25 percent and the inventory of unsold homes is about 50 percent higher than it was the same time last year.

This is just one of innumerable stories about the woes of the housing market. We all understand about human beings having woes. But how can a housing market have either setbacks or woes? Moreover, why should politicians be riding to the rescue of the housing market with the taxpayers' money?

We hear all sorts of sad stories about people whose homes are "under water" or who are facing foreclosure. But why should our attention be arbitrarily focused on these particular people, rather than on the many other people who would benefit from being able to buy those same houses, if the prices came down? The government is artificially keeping the prices up with subsidies and with pressures on lenders to accommodate the current occupants.

Can we not walk and chew gum at the same time? Is our attention span so limited that we can only think about one set of people that the media and the politicians have chosen to highlight?

Do other people count for less just because the media don't put their pictures in the paper or on the TV screen? Or because politicians are ignoring them?

Sometimes we are more concerned about some people because they are especially deserving. But this cannot be said about those who borrowed money to buy homes that they could not afford, or who borrowed against the equity in their homes, and now find that what they owe is more than the home is worth.

If anyone is especially deserving, it is those who had the common sense to avoid taking on bigger financial obligations than they could handle, but who are now expected to pay as taxpayers for other people's irresponsibility.

No doubt some people who are facing foreclosures might have been able to continue making their mortgage payments if they had not lost their jobs. But since when were we all guaranteed never to lose our jobs? People used to put money aside "for a rainy day." But now people who have spent like there are no rainy days are supposed to have the taxpayers pay to give them an umbrella.

What about the people who saved and put their money in a bank? Those who blithely say that the banks ought to modify the mortgage terms to accommodate people who are behind in making their monthly payments forget that, however "rich" a bank may be, most of its money actually belongs to vast numbers of depositors, most of whom are not rich.

Those depositors deserve to get the best return on their money that supply and demand can offer. Why should people who save be sacrificed for the benefit of those who spent more than they could afford?

Why are politicians so focused on one set of people, at the expense of other people? Because "saving" one set of people increases the chances of getting those people's votes. Letting supply and demand determine what happens in the housing market gets nobody's votes.

If current occupants are put out of their homes and the prices come down to a level where others can afford to buy those homes, nobody will give politicians credit-- or, more to the point, their votes. Nor should they.

Rescuing particular people at the expense of other people-- whether the others are taxpayers, savers or prospective home buyers-- produces votes. It also produces dependency on government, which is good for politicians, but bad for society.

That is why politicians give what Adam Smith called "a most unnecessary attention" to things that would sort themselves out better and faster without heavy-handed government intervention.

Why do the media fall in with this arbitrary focus on particular people who are having trouble holding on to homes they cannot afford? Partly because it makes a good story and partly because too many people in the media simply go with the politicians' talking points. That is a lot easier than thinking.

But the rest of us have no excuse for not thinking-- or for letting ourselves be stampeded by rhetoric about "saving" the housing market.




FL: Professor busted for “suspicious” bagel on plane: "A Florida professor was arrested and removed from a plane Monday after his fellow passengers alerted crew members they thought he had a suspicious package in the overhead compartment. That 'suspicious package' turned out to be keys, a bagel with cream cheese and a hat. Ognjen Milatovic, 35, was flying from Boston to Washington D.C. on US Airways when he was escorted off the plane for disorderly conduct following the incident."

TSA: I just don’t think most people get it: "And I just don't think most people got it. If you will tolerate having yourself and your family photographed in all their glory with very possibly cancer-causing X-rays and/or having yourself and your family groped from head to toe — naughty bits included — in the name of 'national security' what won't you tolerate?

No comfort and joy over holiday gas prices: "It wasn't a very merry Christmas for America's motorists, as pump prices averaged $3 per gallon nationwide for the first time since 2008. President Obama's holiday gift to car and truck owners -- new proposals to clamp down on domestic oil drilling and ratchet up refining costs -- will only make matters worse in the years ahead."

Why America should ride the anti-drug-war wave: "It’s one thing that the United States will soon be taking orders from China (or already is). But what about when we’re becoming less forward-thinking than England? That’s the only possible reading of the fact that there, the former top drug official Bob Ainsworth has addressed the House of Commons and argued for the legalization of all drugs."

The day Social Security fails: "Those who fervently believe in government, in spite of all the evidence, are convinced that there will not be a problem until 2038 (previously 2042) because the Treasury Bonds that comprise the Trust Fund will be cashed in. Everyone else considers 2016 to be the day the program goes bankrupt."

Does sexual fare cause sexual violence?: "In the 1980s, conservatives and feminists joined to fight a common nemesis: the spread of pornography. Unlike past campaigns to stamp out smut, this one was based not just on morality but on public safety. They argued that hard-core erotica was intolerable because it promoted sexual violence against women. ... in the past two decades, we have essentially conducted a vast experiment on the social consequences of such material. If the supporters of censorship were right, we should be seeing an unparalleled epidemic of sexual assault. But all the evidence indicates they were wrong."

FDIC seeks $2.5 billion from failed bank honchos: "Three years after the financial meltdown started, bank watchdogs are promising taxpayers will have their day in court. The Federal Deposit Insurance Corp. said Tuesday it has approved lawsuits targeting 109 former directors and officers of failed banks in actions that seek $2.5 billion in damages."

Labor, math and love: "The transition back to a free America doesn’t have to hurt anybody. Income redistribution programs could be phased out over a period of a few years, on a strict schedule. Or they could even be wiped out overnight in exchange for a fixed lump sum payment. Would you agree to never receive any Social Security, Medicare, Medicaid, ObamaCare, public education, unemployment insurance, etc., for a one-time payment of $100,000 and guaranteed tax-free status for all income you or your children or their children ever earned? Even if every American household jumps at that proposal, that would still cost far less than running our government in the same bloated way we have been for the past few years."

Re-entering home ownership: "The confluence of 4.75% interest rates and a short sale of $125,000 on a place once valued at $195,000 got us on the paper processing path. ... A wonderful treat in this change is going from $800 per month rent (plus) to a $788 mortgage that includes taxes and insurance."


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The Big Lie of the late 20th century was that Nazism was Rightist. It was in fact typical of the Leftism of its day. It was only to the Right of Stalin's Communism. The very word "Nazi" is a German abbreviation for "National Socialist" (Nationalsozialist) and the full name of Hitler's political party (translated) was "The National Socialist German Workers' Party" (In German: Nationalsozialistische Deutsche Arbeiterpartei)


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